December Market Update

By Ryan Gilmer, CFA, CMT Chief Investment Officer

January 4, 2021

We hope you are doing well. Here is a recap of market performance for the month of December, and 2020 year-to-date:

Stocks had another positive month in December. US small cap outperformed large cap and international stocks, which were also positive. Bonds were relatively unchanged. As you can see from the table above, all four of the major benchmarks we track had solid returns for 2020, despite high levels of volatility at the beginning of the year.

Have you heard of the Santa Claus Rally?

According to Ryan Detrick, Chief Market Strategist at LPL Financial, the Santa Claus Rally is a seven-day period that consists of the last five trading days of the current calendar year and the first two of the next year. Historically, as shown in the chart below, it is one of the best-performing time periods of the year regarding both to how often the market is positive and the strength of returns.
There are 254 seven-day periods in a year. Since 1950, the Santa Claus Rally period has been positive about 78% of the time, higher than all other seven-day periods. Its average return of 1.33% ranks second. Historically, it’s been a very positive environment for stocks. Here is the performance for the Santa Claus Rally, starting with Christmas 1999:

Over the past 21 years, the Santa Claus Rally has only failed to materialize five times. For each of those times, the following January also had negative returns, and three of the five subsequent calendar years posted losses as well. For the 2020-2021 Santa Claus Rally, the S&P 500 has returned 1.79% so far, and stock futures are higher today before the market open. So it looks like Santa may have been first in line for his vaccine, because so far, he is delivering a stock market rally!

Does this information tell us anything actionable? There may be some factors which contribute to the typically positive performance over this period: less trading volume, investing of extra cash before year end, or investors optimistically looking to a new year. But realistically, we doubt that many investors make big allocation decisions based on a short period of time, so this information is just fun and enjoyable – like the real Santa!

Happy New Year – we are excited to continue helping you reach your financial goals in 2021!

Keywords: market update
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